Each quarter, large investors, such as Bruce Berkowitz’s Fairholme fund, file 13Fs with the SEC, disclosing many of the positions held in their equity portfolios during the latest three-month period. Fairholme, in particular, is a very large managed fund, with over $19 billion in assets under management. According to most estimates, it has averaged a monthly return of just over 1% since September 2000.
The original 13F is here, and it’s worth noting that retail investors have beaten the market by piggybacking hedge fund sentiment (see the secrets here). Let’s take a look at Berkowitz’s five largest newest positions initiated during the first quarter of 2013.
Chesapeake Energy Corporation (NYSE:CHK)
The fund’s largest new position was in Chesapeake Energy Corporation (NYSE:CHK), with a $273 million position reported at the end of the quarter. In spite of its high debt and ongoing asset sales, the company has a strong presence in the Utica shale field and others, and Berkowitz’s move seems to be a bet on the longer-term prospects of the company.
Doug Lawler’s presence as Chesapeake Energy Corporation (NYSE:CHK)’s new CEO is expected to stabilize shareholders’ uncertainty moving forward, which may be an added boon to the company’s stock price. Wall Street’s average price target on Chesapeake Energy Corporation (NYSE:CHK) indicates a 5-6% upside is expected from current levels, and Susquehanna recently upgraded shares to a Positive rating from Neutral due to Lawler’s hire, with a price target to $26. Shares currently trade in the mid-$21 range.
Canadian Natural Resource Ltd (USA) (NYSE:CNQ)
The fund also bought 1,101,800 shares in Canadian Natural Resource Ltd (USA) (NYSE:CNQ), creating a position worth over $35.4 million in the oil and gas E&P. Despite a recent downgrade by Zacks, some pundits consider Canadian Natural Resource Ltd (USA) (NYSE:CNQ) to be a possible takeover target, and it also stands to benefit if the Keystone XL pipeline is approved. The company’s chief land ownership in the Western half of Canada gives Berkowitz solid exposure to this region, while shares trade at a lowly 11.2 times year-ahead earnings. A PEG near 1.3 indicates that despite the fact that analysts expect 30% EPS growth next year, this energy company is still moderately cheap.
Genworth Financial Inc (NYSE:GNW)
The third and last new buy for Berkowitz during this quarter was 898,800 shares in Genworth Financial Inc (NYSE:GNW), creating a position worth about $9 million as of March 31. Berkowitz’s move may have been in anticipation of impressive earnings performance in the latest quarter, as Q1 net income doubled (year-over-year) to $103 million.
Up more than 37% year to date, investors’ optimism has been primarily due to Genworth’s potential three-way breakup. The financial security company is expected to IPO its Australian mortgage insurance unit for $800 million in the next year or two, and most analysts expect Genworth to sell its wealth management and alternative businesses for a sum of $400 million.
While Genworth has said that it is waiting for “more evidence of a good IPO market,” the Australian IPO is expected to be the company’s first priority. Generally speaking, Genworth’s core U.S. mortgage and long-term care businesses would benefit from a breakup, as the company could heighten its focus on these two areas.
Although it’s hard to estimate a specific post-breakup value here, Wall Street believes that Genworth shares have further upside despite their superb appreciation of late, as average price targets rest around the $11.20 mark; shares currently trade near $10.35. Moving forward, we’ll be watching for more gains once an exact timeframe is set on the Australian IPO, but it’s clear that Berkowitz is here for the breakup potential.
Final thoughts
Fairholme is a large and influential investor, with a bias towards value-oriented plays. All of these stocks may be worth adding to your watchlist if Berkowitz’s investment style matches your own. (Continue preparing for 13F-filing season here).
Disclosure: none
